Maximus ARC Limited vs KRISHNA INDUSTRIAL CORATION LTD on 30 August 2022

FINAL ORDER

1. This application is filed by the applicant bank under Section 19(1) of Recovery of Debts and Bankruptcy Act, 1993 against the defendants’seeking issuance of a Recovery Certificate forrecovery of an aggregate sum of Rs.18,85,43,720.14p comprising of a sum of Rs.18,31,49,158.40p together with further interest at the rate of 15.50% per annum with monthly rests being the amount due under OCC/FLC/BG Limit and a sum of Rs.54,03,561.55p together with further interest at the rate of 15.50% per annum with monthly rests being the amount due under Bank Guarantee Account plus 2% overdue interest from the date of filing of this application till the date of realisation along with costs of the application and for sale of schedule properties.

2. It is the case of the applicant that the 1st defendant has been availing and enjoying various credit facilities such as OCC, FLC/ILC and Bank Guarantee from Andhra Bank, Mount Road Branch, Chennai from 2004 onwards and the said credit facilities were renewed from time to time and one such renewal was done by the bank vide its sanction letter dated 05.06.2013 and the limits were last renewed vide sanction letter 28.11.2014 viz., OCC Limit of Rs.4,00,00,000/- FLC Limit of Rs.11,00,00,000/- and BG Limit of Rs.20,00,000/- subject to terms and conditions viz., BG limit is to be availed at Andhra Bank, Nidadavole Branch, Andhra Pradesh, 1st Defendant has to build up funds to meet electricity consumption charges on respective due dates apart from adjusting excess drawals in OCC account and thereby to regularize the account and also that the 1stdefendant shall undertake to maintain sufficient balance in the cash credit account to meet the commitment under LC without scope for development.

3. It is also the case of the applicant that as per the terms and conditions of sanction the loan facility limits were renewed against the primary security of Hypothecation of stocks of raw materials, semi-finished goods, stores & spares, finished goods and subsidy receivables (180 days) and book debts (90 days) and also against the collateral security of second charge on the fixed assets situated at Nidadavole, West Godavari District of the 1st Defendant company other than vehicle for which HP charges vest with financing Banks/FIs. It is stated that the 1st charge over the fixed assets situated at Nidadavole, West Godavari District was exclusively held by the 4th Defendant namely APSFC, Eluru Branch, Andhra Pradesh.

4. It is the further case of the applicant that the defendants 1 to 3 executed necessary loan documents on 17.12.2014 viz., Composite Loan Agreement, etc., for Rs. 15.20 crores in favour of the Applicant Bank at Mount Road Branch, Chennai and the 2nd and 3rd Defendants also executed General Form of Guarantee extending their personal guarantee for repayment of the dues to the Applicant Bank.

5. It is the case of the applicant that to secure the said limits the 1st defendant created security over the immovable property more fully described in the Schedule hereunder by way of second charge over the said property since the availment of the loan from 2004 as the 4th Defendant was holding exclusive first charge over the schedule property. It is stated that pursuant to request made by the 1st Defendant as also by the assignor bank, the 4th Defendant vide their letter Ref. No. AFC/EL/BM/2013-14/2458-A dated 26.9.2013 confirmed ceding of second charge on the fixed assets situated at Nidadavole, West Godavari District of the 1st Defendant Company in favour of the assignor Bank. It is also stated that the 4th Defendant gave an undertaking that the tittle deeds deposited by the 1st Defendant company will be held by the 4th Defendant on behalf of the assignor bank also. It was further reiterated that the tittle deeds will not be released to the 1st Defendant unless clearance in writing from the Applicant Bank is submitted. It is also stated that the 1st Defendant Company had registered the second charge over its fixed assets with Registrar of Companies by filing Form -8 and 13 on 3.8.2005 and modified the same from time to time on 30.9.2013 for the renewed limits. It is stated that thus equitable mortgage was created over the schedule property in favour of the Applicant Bank by way of second charge

6. It is also the case of the applicant that the defendants 1 to 3 committed default in repayments and failed to regularize the loan accounts despite repeated request and hence the loan account was classified as NPA on 28.2.2015 in accordance with the guidelines of the Reserve Bank of India. It is stated that thereafter the said loan account of the Defendants 1 to 3 was transferred from its Mount Road Branch to Specialised Asset Recovery Management Branch, 168, Lingi Chetty Street, Chennai.

7. It is the case of the applicant as the defendants 1 to 3 did not come forward to clear the outstanding dues the assignor bank sent a legal notice on 7.12.2016 calling upon the defendants to clear the outstanding dues, which was duly served on them. It is stated that despite receipt of the notice the defendants 1

to 3 did not come forward to clear the dues and hence the applicant reserves the rights to proceed under the provisions of the SARFAESI Act independent of filing this OA.

8. It is also the case of the applicant that the 4th Defendant has been impleaded as a proforma party in this OA, since the 4th Defendant is holding 1st charge over the fixed assets of the 1st Defendant Company more fully described in the schedule hereunder and no claim or relief is sought or prayed against the 4th Defendant. It is stated that if and when the 4th Defendant initiates any action to sell the schedule property in their capacity as 1st charge holder then the 4thdefendant shall share the surplus sale proceeds to this Applicant Bank after adjustment of their dues.

9. The defendants 1 to 3 filed their reply statement contending therein that the 1st defendant company is one of the oldest and leading fertilizer manufacturing companies in India, incorporated as early as 1947 and had availed credit facility from the assignor bank for carrying out its day today affairs of the company. It is stated that the Government of India devised a plan to provide subsidy in the sale of fertilizers to the farmers from the year 2009 and consequently the 1st defendant had to sell the fertilizers to the agriculturist at a subsidized price and the same will be later on reimbursed by the Government of India. It is also stated that as Government of India delayed the reimbursement of the subsidy which the 1st defendant is entitled to due to which the repayment of loans was badly affected.

10. It is contended by the defendants 1 to 3 that the 1st defendant company had filed W.P. 6065 of 2017 before the Hon’ble High Court of Madras, wherein the assignor bank was a party respondent, relief was claimed as against the Government of India for release of subsidy and against the bank not to proceed in any manner against the 1st defendant pending writ petition. It is also contended that despite the filing of the said writ petition, the assignor bank has invoked the provisions of the SARFAESI Act and issued a demand notice under Section 13(2) of the Act demanding payment of the entire outstanding. It is further contended that the assignor bank has also sent a notice under Insolvency and Bankruptcy Code and initiated Corporate Insolvency Resolution Process as against the 1st defendant company. It is stated that the 1st defendant has replied to all the notice issued by the assignor bank.

11. It is also contended that pending writ petition the debt has been assigned to the applicant, who had proceeded against the defendants 1 to 3, when the matter is subjudice before the Hon’ble High Court. It is stated that the amount claimed by the applicant is incorrect and excessive interest is being charged. This contending prayed for dismissing the application.

12. 4th defendant filed its reply statement contending therein that it is only a proforma party and no relief is claimed against them and hence the OA may be dismissed as against the 4th defendant in limine. It is stated that the 4th defendant is a term lending institution incorporated under Section 3 of the State Financial Corporation Act, 1951 for promoting small and medium scale industries in the State of Andhra Pradesh and has launched many entrepreneurial friendly scheme to provide term loans, working capital term loans assistance to suit the needs of various categories of entrepreneurs and has dedicated its service in industrial financing of micro, small and medium scale sector units and contributing to the balanced regional development of the State of Andhra Pradesh. It is also stated that the 4th defendant has been providing term loans to the 1st defendant company since 1963 and was sanctioned 9 (nine) term loans aggregating to Rs.1045.05 lakhs and also sanctioned 11 Working Capital Term Loans aggregating to Rs.1645 lakhs and the 1st defendant has closed all the nine term loans and 8 working capital accounts and presently three medium term loan are in existence. It is further submitted by the 1st defendant that at present a sum of Rs.5,55,32,675/- is due from defendants 1 to 3 as on 31.10.2018, who have created first charge over the fixed assets situated at Nidadavole, West Godavari District towards security for the loans availed and the 4th defendant reserves its right to recover the sums due from the defendants 1 to 3 as per the provisions of Section 29 of the State Financial Corporation Act, 1951 vide separate application and upon obtaining a favourable order, shall share such proceeds with the applicant company after satisfying its dues. Thus submitting the 4th defendant prayed for dismissing the OA as against 4th defendant.

13. The applicant bank filed its proof affidavit along with 20documents, which are marked as Exhibits A-1 to A-20, the details of which are as under: - Sl. No. Date Description of Documents Exhibits

1. 05.06.2013 Sanction letter of the assignor bank renewing the credit facilities granted to the defendants A 1

2. 28.11.2014 Sanction letter of the assignor bank renewing the credit facilities granted to the defendants A 2

3. 12.11.2014 Board Resolution of the 1st defendant authorizing defendants 2 and 3 to A 3

Sl. No. Date Description of Documents Exhibits execute the loan and security documents.

4. 17.12.2014 Demand Promissory Note for OCC Limit executed by the 1st defendant A 4

5. 17.12.2014 Demand Promissory Note for ILC/FLC Limit executed by 1st defendant A 5

6. 17.12.2014 Demand Promissory Note for BG Limit executed by the 1st defendant A 6

7. 17.12.2014 Composite Hypothecation Agreement executed by the 1st defendant A 7

8. 17.12.2014 Counter Guarantee Form executed by the 1st defendant A 8

9. 17.12.2014 General Form of Guarantee executed by defendants 2 and 3 A 9

10. 17.12.2014 Consent Letter for disclosure of information to CIBIL executed by 2nd defendant. A 10

11. 17.12.2014 Consent Letter for disclosure of information to CIBIL executed by 3rd defendant. A 11

12. 08.08.2015 Letter of the 1st defendant for creation of 2nd charge over the fixed assets of the 1st defendant. A 12

13. 30.09.2013 ROC Certificate confirming modification of charges. A 13

14. 26.09.2013 Letter of the 4th defendant ceding pari passu charge over the schedule property A 14

15. 07.12.2016 Legal notice issued by the assignor bank to the defendants A 15

16. 31.12.2016 Reply of the defendants to the legal notice. A 16

17. Acknowledgement card by 1st defendant A 17

18. Acknowledgement card by 2nd defendant A18

19. Acknowledgement card by 3rd defendant A19

20. Statement of Accounts in respect of the loan account along with certificates under Bankers’ Book Evidence Act. A-20

14. Defendants 1 to 3 filed their Counter Proof Affidavit reiterating the contentions raised in their written statement, and prayed for dismissing the OA. 4th defendant filed a memo stating therein that the reply statement filed by it may be considered as their Counter Proof Affidavit.

15. Heard the Ld. Counsel for the Applicant Bank. As the defendants did not choose to advance their arguments, the defendants were called absent and set ex-parte on 20.06.2022 and the applicant bank was heard on 26.7.2022. Perused the records.

16. Having heard the Ld. Counsels for the applicant and after perusing the records, the Tribunal framed the following points for consideration: -

1. Whether the applicant bank has established its claim against the defendants? If so, for what amount?

2. Whether the applicant bank is entitled for pendent lite and future interest, if so, at what rate?

Point No.1

Whether the applicant bank has established its claim against the defendants? If so, for what amount?

17. The applicant bank in its endeavor to establish its claim against the defendant examined its official as AW1 and got marked exhibits Ex.A-1 to A-20. Ld. Counsel for Applicant placing reliance on the proof affidavit of AW-1, besides Exhibits A-1 to A-20 strenuously contended that the claim of the applicant stands established, as such, the applicant is entitled for a recovery certificate.

18. Ld. Counsel for Applicant Bank would contend that even as per the Reply Statement filed, the defendants have not denied availing of credit facility, execution of loan and security documents and creation of second charge over the schedule property in favour of the applicant and as such the said admission is sufficient enough to allow the claim of the applicant. Ld. Counsel further contended that the contention of the defendants 1 to 3 that the applicant has charged usurious interest and has not filed any documents in support of the interest rate claimed are all false. Ld. Counsel would also contend that the statement of accounts filed is proper and supported by appropriate certificate under Bankers’ Book Evidence Act and Information Technology Act and hence the contention of the defendants regarding improper statement of accounts and the amount claimed cannot be countenanced. Ld Counsel also contended that the contention of the defendants 1 to 3 that despite filing of W.P. No.6065 of 2017 before the Hon’ble High Court the applicant has proceeded against the defendants 1 to 3 and which action of the applicant is highly illegal cannot be countenanced for the reason that there is prohibitory order that has been passed by the Hon’ble High Court. Ld. Counsel further contended that the 4th defendant is only a proforma party and no relief is claimed against the 4th defendant. Thus submitting the Ld. Counsel prayed for allowing the application as prayed for.

19. In so far as the contention of the defendants 1 to 3 that the amount claimed is not correct and the applicant has charged exorbitant interest is concerned it is to be stated the applicant has filed the statement of accounts accompanied by certificates under Bankers’ Book Evidence Act and therefore the claim of the defendants that the applicant has charged usurious interest and the amount claimed is not proper and supported by documents fails. This is more so as the defendants inspite of filing proof affidavit had failed in pointing out any anomaly in the statement of accounts produced and marked by the applicant.

20. In so far as the contention of the defendants 1 to 3 that they had filed W.P. No.6065 of 2017 before the Hon’ble High Court of Madras, challenging the inordinate delay on the part of the Government of India in releasing the subsidy amount, wherein the assignor bank is also a party respondent and that a prayer has been made to direct the applicant not to proceed further in any manner during the pending of the writ petition and despite the same the applicant has proceeded under SARFAESI Act and Insolvency and Bankruptcy Code and had issued notice, which action of the applicant is contumacious is concerned, it is to be stated as there is no restraint order that has been passed by the Hon’ble High Court, the action of the applicant filing the application for recovery cannot be held to be illegal.

21. Therefore, in the light of the discussion as aforesaid, it is clear that the proof affidavit and the documents filed along with by the applicant remain unchallenged by the defendants 1 to 3. Further, the Tribunal on careful perusal of the unrebutted Proof Affidavit of AW-1 besides Exhibits A-1 to A-20 is fully satisfied that the applicant has established its claim. This point is answered accordingly.

Point No.2

Whether the applicant bank is entitled for pendent lite and future interest, if so, at what rate?

22. In terms of Sec. 19 (20) of the RDB Act, the Tribunal has been empowered to pass an order regarding payment of interest from the date on or before which payment of the amount is found due, up to the date of realisation or only payment, as it think fit to meet the ends of justice. Further, Hon’ble Supreme Court, in the judgement (reported in II 2009 BC pg. 696) in the matter of State Bank of India – vs – Sarath Textiles, held that “Sec. 19 (20) of the RDDB & FI Act confers discretion on the Tribunal to award interest on the applicant being as it thinks fit to meet the ends of justice.”. Further, Hon’ble Supreme Court of India in the matter of Central Bank of India – vs – N. Raveendra (reported in 2002 [1] SCC pg. 367) held that “Sec. 34 of CPC confers discretion on the Court to award or not to award interest or to award interest at such rate as it deems fit de-horse notwithstanding the contract between the parties.” Sec. 19

(20) of the RDDB & FI Act is akin to Sec. 34 CPC.

23. While it is the case of the applicant that the applicant bank is entitled for contractual rate of interest till discharge of the entire outstanding dues, however, the defendant would contend that in so far as pendente lite and future interest is concerned, the contractual rate of interest may not be applied. It is to be stated that the claim of the applicant bank includes the rate of interest and other charges payable as per the contract. The Tribunal already held that the applicant bank is entitled for the amount claimed in the OA. As already stated, the Tribunal has awarded contractual rate of interest as claimed by the applicant bank till the date of filing the OA and in view of the fact that the subject loan being a business loan and thelending rate had considerably come down, the Tribunal is of the view that the defendants are entitled for a reduced rate of interest. Therefore, under these circumstances, the Tribunal is inclined to grant pendente lite and future interest @ 10% p.a.

simple on the OA claim amount from the date of filing till the date of realization. Point No.2 is answered accordingly.

24. During the pendency of the OA, the applicant filed a memo stating therein that Corporate Insolvency Resolution Process (CIRP) has been initiated against the 1st defendant vide order of the Hon’ble National Company Law Tribunal, Chennai dated 16.12.2019 in CP/1053/(IB)/2018 and further by order dated 27.7.2020 in MA/376/2020 in CP/1053/(IB)/2018 Hon’ble NCLT, Chennai was pleased to order liquidation and appointed one Mr. S. Rajendran as Liquidator.

25. In view of the afore mentioned discussions, the OA is disposed off in the following manner: - (a) OA No.546 of 2017 stands allowed.

(b) Applicant is permitted to realize an amount of Rs.18,85,43,720.14with further interest @10% per annum (simple) from the date of filing of the application till the date of realization in full, from the defendants 1 to 3 jointly and severally after deducting all the amounts received by them during the pendency of OA, and also by selling the schedule properties and other assets of the defendants. However, the applicant shall have only the 2nd charge over the property and shall have pari passu charge over the property along with the 4th defendant.

(c) It is also made clear that the liability of 1st defendant shall be subject to the outcome of the proceedings before NCLT, Chennai.

(d) If the sale proceeds are not found sufficient to cover the amount due and payable to the Applicant, the defendants 2 and 3 are personally liable for all such amounts due.

(e) Applicant is permitted to realize cost of the proceedings and shall file cost memo within 7 days from the date of the order.

(f) The Recovery Certificate shall be drawn up and issued to the Recovery Officer in terms of this final order.

18. Communicate a copy of the order to the parties concerned in terms of Section 19(21)(i) of the RDB Act, read with Rule 16 of DRT (Procedure) Rules, 1993. (Dictated to PS, transcribed by him, corrected, signed and pronounced by me in Open Court on this the 30th day of August, 2022) Sd/- (T. RAJESH) PRESIDING OFFICER DRT-II, CHENNAI